James purchased a new business asset (three-year personalty) on July 23, 2013, at a cost of $40,000. James takes additional first-year depreciation Determine the cost recovery deduction for 2013.

Question

Quizplus · Accepted Answer

Since James purchased the asset on July 23, 2013, he can only take half-year depreciation in 2013. The additional first-year depreciation for 3-year personalty is 50% of the cost, which is $20,000. Therefore, the cost recovery deduction for 2013 will be:

($40,000 × 50%) × 50% = $10,000

However, since James can only take half-year depreciation in 2013, he can only take half of the $10,000 deduction, which is $5,000. Therefore, the cost recovery deduction for 2013 is $5,000.

Note: None of the choices provided is exactly correct, but the closest one is B.

James Purchased a New Business Asset (Three-Year Personalty) on July